BTN News: The Colombian government, led by President Gustavo Petro, has introduced a new tax reform in 2024 aimed at generating 12 billion pesos in revenue. The reform proposes significant changes for businesses and individuals, focusing on income tax adjustments, wealth tax expansion, and new environmental and consumption taxes. These measures are designed to close fiscal gaps, promote social equity, and incentivize sectors like renewable energy. This article breaks down the core changes and what they mean for Colombians and the country’s economic landscape.
Corporate Tax Reduction: A Gradual Approach for Large and Small Businesses
Under the 2024 tax reform, the government seeks to lower corporate tax rates progressively over the next five years. Currently set at 35%, the reform proposes a tiered system based on company size:
- Large companies (with taxable income over 5.6 billion pesos) will see their tax rate drop to 34% in 2025, eventually settling at 33% by 2029.
- Medium-sized businesses (with incomes between 295 million and 5.6 billion pesos) will experience a reduction to 34% in 2025, decreasing by 1% annually until reaching 30% in 2029.
- Small businesses, earning less than 295 million pesos, will benefit from a permanent 27% tax rate starting this year.
Additionally, the minimum corporate tax rate will increase from 15% to 20%, eliminating loopholes for tax evasion.
End of the Simple Tax Regime in 2025
One of the most significant changes in the reform is the proposed elimination of the Simple Tax Regime, a simplified system aimed at small businesses. Starting in 2025, all businesses will have to transition to the general tax system, increasing the complexity of tax filings but aiming to enhance government revenue.
Wealth Tax Expansion: More Colombians Will Be Affected
The 2024 tax reform also proposes broadening the wealth tax base, reducing the entry threshold from 72,000 UVT (around 3.4 billion pesos) to 40,000 UVT (around 1.88 billion pesos). This change will see more Colombians subject to wealth tax, affecting an estimated 75,000 new taxpayers, representing 1.3% of income tax filers.
Higher wealth levels will also face steeper rates. For the wealthiest 0.1% of Colombians, those with assets exceeding 240,000 UVT (approximately 11.2 billion pesos), the tax rate will rise from 1.5% to 2%. This adjustment aims to ensure greater contributions from the country’s richest individuals.
Curbing Tax Evasion with Asset Identification
To further limit tax evasion, the reform introduces measures to tax unproductive assets that currently go unreported. By broadening the scope of taxable assets, the government expects to capture a greater share of wealth and close gaps in the taxation system.
Higher Income Tax and Capital Gains for Individuals
For individual taxpayers, the reform proposes several key changes that primarily affect the wealthiest Colombians. The marginal income tax rate will increase from 39% to 41% for those earning over 121 million pesos per month, affecting only the top 1% of income earners.
Furthermore, capital gains taxes will also rise from 15% to 20%, and taxes on winnings from lotteries and betting will increase from 20% to 25%. These changes are intended to boost revenue from non-salary income streams, which are under-taxed compared to regular income.
Restricting Deductions for Dependents
Currently, taxpayers can deduct up to 72 UVT per dependent when filing income tax returns. However, the new reform aims to restrict this deduction, limiting it to one beneficiary per dependent, a move designed to prevent abuse of the system.
Retention at the Source: Aligning With Actual Tax Liability
The reform seeks to improve the accuracy of tax withholding, ensuring that retention at the source closely matches the actual tax liability. By calibrating withholding rates, the government hopes to reduce the common issue of over-withholding, which often leads to large refunds for taxpayers.
Beginning in February 2025, the highest tax bracket—those earning over 2,300 UVT annually—will see their withholding rate rise from 39% to 41%. This adjustment is designed to align with the higher income tax rate for the country’s top earners.
Environmental and Consumption Taxes: Carbon and VAT on Hybrid Vehicles
The government is also targeting environmental sustainability through higher taxes on carbon emissions and changes to value-added taxes (VAT). The carbon tax will rise significantly, from 25,000 pesos per ton of CO2 to 75,000 pesos per ton, potentially increasing the cost of energy, including gas bills for consumers.
Meanwhile, hybrid vehicles, currently subject to a reduced 5% VAT, will see an increase to the standard 19% VAT rate. This change is part of a broader initiative to promote electric vehicles and discourage reliance on hybrid models as a middle ground between traditional and fully electric options.
VAT on Online Gambling and Digital Platforms
The government is also closing a loophole by imposing a 19% VAT on online gambling platforms, which had previously been exempt. In contrast, physical gambling establishments were already taxed, and this change seeks to level the playing field. The move is expected to generate 2.1 billion pesos in 2025 alone, as online gambling has surged, generating 35.6 billion pesos in 2023 compared to 16 billion in 2021.
Incentives for Renewable Energy and Housing
While much of the reform focuses on increasing taxes, there are incentives to stimulate certain sectors, particularly renewable energy. Companies investing in energy projects certified by the Upme (Unidad de Planeación Minero Energética) will be eligible for tax deductions of up to 50% of their investments, spread over 15 years. These incentives aim to accelerate Colombia’s transition to green energy.
In addition, the reform grants the Fondo Nacional del Ahorro (National Savings Fund) new powers to offer loans for home improvements without the need for a mortgage, promoting better housing conditions for lower-income Colombians.
Strengthening the DIAN: Fighting Tax Evasion and Fraud
To ensure better enforcement of the new tax rules, the reform includes measures to bolster the DIAN (Colombian Tax Authority). Among the most notable changes are:
- Increased tax audits to ensure compliance and prevent fraud.
- Rewards for whistleblowers who report tax evasion or customs violations.
- Limits on cash payments to promote greater use of the banking system and improve tax tracking.
By strengthening the DIAN’s ability to monitor and enforce tax laws, the government hopes to reduce tax evasion and increase collections.
